Central Valley Real Estate

Modesto #6 in USA For Highest Unemployment

It's not cheerful news, but it's important to note: HousingEconomics.com (sponsored by the National Association of Homebuilders, NAHB) recently released March 2009 employment data. Highlights from the report include:

National Unemployment rate: 8.5%

#3 Highest Unemployment Rate: Merced - 18.5%
#6 Highest Unemployment Rate: Modesto - 16.5%
#9 Highest Unemployment Rate: Stockton - 15.7%
#10 Highest Unemployment Rate: Fresno - 15.7%

At least we know where we stand, right?

The full resource can be downloaded here: http://www.nahb.org/fileupload_details.aspx?contentID=55105&channelID=311

Report Shows Modesto, Merced & Stockton As "Most Affordable" In CA

BACKGROUND:
In a recent report issued by the National Association of Home Builders (NAHB) and Wells Fargo, the NAHB/Wells Fargo Housing Opportunity Index (HOI) report tracks home affordability by comparing the median home sales price to the median income for each metropolitan area, and issues a HOI rating that indicates the percentage of homes that are considered affordable to families earning the median income for that area. A rating of 50, for example, indicates that 50% of the homes are affordable to median-income-earning families. The higher the rating, the more affordable the area.

FINDINGS:
The HOI report for the 4th Quarter of 2008 shows that Modesto, Merced, and Stockton were the three most affordable areas in the state of California, with affordability rates of 71.1% for Modesto, 70.9% for Merced, and 66.4% for Stockton. Sacramento/Roseville was next in line, then Yuba City, then Vallejo/Fairfield.

 

As noted in an earlier post, the 71.1% affordability rate for the Modesto area makes it more affordable than at any time in Modesto's past, since 1998.

The least affordable? No great surprise there: San Francisco/San Mateo/Redwood City. It's very interesting that the least and most affordable areas are within commuting distance of each other!

Reconciling Two Diverging Foreclosure Trends

from ForeclosurePulse:

U.S. foreclosure activity hit another record-high level in April, thanks to a slight increase from the previous month, according to the U.S. Foreclosure Market Report. Foreclosure filings were reported on 342,038 properties during the month, up less than 1 percent from March and up 32 percent from April 2008.

Most of the increase came in the early stages of foreclosure -- defaults and auctions -- which together increased about 3 percent from the previous month and 47 percent from April 2008. Meanwhile REOs were down nearly 11 percent from the previous month and down nearly 9 percent from April 2008. This is not a one-month phenomenon. REOs have been decreasing fairly consistently since hitting a peak in August 2008. Defaults and auctions have been steadily increasing since hitting a low in November 2008.

So what's going on with the diverging trends?

“Total foreclosure activity in April ended up slightly above the previous month, once again hitting a record-high level,” said James J. Saccacio, chief executive officer of RealtyTrac. “Much of this activity is at the initial stages of foreclosure – the default and auction stages – while bank repossessions, or REOs, were down on a monthly and annual basis to their lowest level since March 2008. This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. It’s likely that we’ll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months.” 

Fannie Mae REO Financing Tips with HomePath

With the number of REO properties increasing, I’m being asked more often about HomePath financing.  HomePath financing is available for Fannie Mae REO’s with the HomePath logo found on HomePath.com.  There are approximately 950 properties in the Central Valley today that are eligible for this financing.  I’ve personally noticed a significant increase in questions about this financing so I thought I would cover the basics.  First, there are two types: a HomePath Mortgage and a HomePath Renovation Mortgage.  The difference being, the HomePath Renovation Mortgage will allow minor fixes to the property. 

Here is a quick synopsis of the HomePath Mortgage:

• Minimum 3% down for primary residence, 10% down investment property
• Borrower can own up to 10 financed properties (but need 25% down if they own more than 4)
• NO APPRAISAL NEEDED
• NO MORTGAGE INSURANCE
• High balance (jumbo) and interest only products available
• Seller contributions can be 6-9% on primary residence (the larger the down payment, the larger the allowable contribution), only 2% on investment property
• This loan does price with a higher rate than your average 30 year fixed conforming loan.  If you want an equivalent rate to the going 30 year fixed, this loan would price with an additional approx 1% to 3.75% discount points.  Keep in mind, much of this can be covered by the seller and there is no mortgage insurance.  Of course one can just opt for the higher rate in lieu of the discount points.
• Same basic underwriting requirements of a conforming loan, but without the property issues (appliances missing - no problem)

The HomePath Renovation Mortgage is currently only offered by 3 lenders nationwide.  This will allow for light renovations to the property that can be included into the loan.  Information about this specific product is scarce.  In general, renovation and construction type of products work like this:

• An appraisal is done “subject to” the completion of the repairs.  The value will typically be the appraised value or the cost of the house plus renovations, whichever is lower.   The down payment is based on this value (hence, most of the renovation work gets financed into the loan).
• The loan closes and the repairs are completed by a licensed contractor within a specified amount of time
•  There is more involved with these types of loans, such as: bids, inspections, draw schedules, etc. 
• The interest rate is typically higher than your general conforming 30 year fixed

Overall, the HomePath Mortgage is a great loan.  I can’t attest to the HomePath Renovation Mortgage but I’m sure it’s great loan as well.  If you are “handy” and can do most of the work yourself, you may consider the HomePath Mortgage.  When a lender is going to finance renovation work, they will require the work to be completed by a licensed contractor so this sometimes may not work for the “do-it-yourselfer”. 

More Foreclosures Coming To Modesto/Turlock Areas

by (local writer) J.N. Sbranti
The Modesto Bee
April 23, 2009

The lull in foreclosures is about to end.

While it hardly seemed that way, the foreclosure rate was relatively low the past six months in Stanislaus, Merced and San Joaquin counties.

But things are going to get a whole lot worse... (continue reading original article here)

Central Valley: Worst in Nation For Negative-Equity Homes

As prices have continued to decline across the Central Valley, several local communities, including Stockton, Modesto, and Merced have been given the dubious honor of being among the MSAs (Metropolitan Statistical Area) with the highest percentage of homes with negative equity in the first quarter of 2009. Negative equity occurs when the mortgage loan balance is more than the home's current market value.

As shown in the graphic, Stockton, Modesto, and Merced are ranked as #2, #3, and #6 in the country for percentage of homes with negative equity, at 51.1%, 50.8%, and 44.4% of all homes, respectively. Only Las Vegas, at 67.2% of all homes with negative equity, did worse.

Experts, including Thomas Lawler, an independent housing economist, explain that borrowers who owe 30% or more than their homes are worth are far more likely to walk away from their property than those who owe just 5% or 10% more and expect prices to rebound soon. While the graphic shows only the percentage of homes with negative equity without detailing the negative equity percentage, it is clear that if roughly 1/2 of all homes have negative equity, an ENORMOUS amount of them will have negative equity rates of 30% or more, resulting in high foreclosure rates.

Making Home Affordable, the federal government program driven by Fannie Mae and Freddie Mac--who together own approximately 70% of all U.S. mortgages--will only apply to homeowners that have up to 5% negative equity (i.e. owe $210,000 on a home worth $200,000). So again, when roughly 1/2 of all homes have negative equity, many many of them will be in excess of 5% negative equity.

What does all this point to? A continued upward trend in foreclosures throughout the Central Valley of California.

This article on the Wall Street Journal website shows the graphic and analysis and is worth a good read.

California Conundrum: More Defaults & Fewer Foreclosures?

"Mortgage Defaults Rise, But Homeowners Stay Put"
by William Heisel
L.A. Times, April 23, 2009

More Californians are failing to make their mortgage payments than at any time in the last 20 years, but fewer of them are losing their homes, according to new figures.

The drop in foreclosures follows moratoriums adopted by major banks and mortgage giants Fannie Mae and Freddie Mac. The increase in loan defaults, meanwhile, suggests that rising unemployment and the continuing recession are still claiming fresh victims.

But another factor in the soaring default rate could be that some struggling homeowners are purposely skipping their payments so that they can get their loans refinanced, industry experts say.

Lenders are so backlogged... (continue reading original article here)

California Foreclosures Are Back With A Vengeance

From Diana Olick's "Realty Check" blog, posted at CNBC's website on 4/22/09:

We knew it was coming, and now it's here...the return of California's foreclosure crisis.

Okay, it wasn't exactly gone, but maybe just on hiatus thanks to a new state law that went into effect last fall. That law requires lenders to take additional steps to keep troubled borrowers in their homes. Then of course there were various bank and Fannie Mae and Freddie Mac moratoria on foreclosures.

Today DataQuick reports "lenders filed a record number of mortgage default notices against California during the first three months of this year, the result of the recession and of lenders playing catch-up after a temporary lull in foreclosure activity."

Default notices surged... (continue reading original post here)

Foreclosure Firestorm Ahead?

From Diana Olick's Realty Check blog on CNBC, posted May 11, 2009

I’m hearing some elevated chatter in the blogosphere regarding elevated rates of foreclosure, and not just the usual monthly bump up. RealtyTrac, one of the leading online trackers of this sort of thing, is releasing its April data on Wednesday, but word from others is that May could be the month that shows just how bad the numbers will get.

Mark Hanson of the Field Check Group, who works with ForeclosureRadar.com, writes, “there is a Pigzilla the size of a freight train in the python and it has worked its way to the lower intestines.” Hanson claims that foreclosures did not surge in April because the banks simply didn’t have the capacity to process all the distressed loans after all the moratoria had caused a backlog. Specifically, he points to Chase and its WaMu loans.

Beginning on May 4th the properties taken to foreclosure in CA surged. For the past few months, WaMu had been on near full foreclosure moratorium. As of May 7th -- only 5 calendar days into the month -- WaMu already has 10% MORE foreclosure-related REO’s than in all of April. At this run rate, WaMu will have a record foreclosure month of 3300 foreclosures in CA alone or 7000 nationally worth approximately $2.5 billion.

Even scarier... (continue reading original post here)

Top 4 Reasons To Do Your Own 'Loan Mod'

There is currently so much advertising going around--most of it deceitful, illegal or both--that it is easy to think you need to pay a company to do a "loan mod" (or loan modification) for you. THIS IS NOT TRUE. There is little, if any value in having an outside company do this for you. These are the top 4 reasons why:

4. You Follow Up Better: Modifying loans is a complex process, and lender/servicer companies are usually grossly understaffed for all the workload. Also, it is a very paperwork-intensive process. As a result, some papers (or even the whole file, at times) can be lost or misplaced. Persistent follow-up is necessary, to make sure that all required documents have been received and reviewed. However, most companies that offer loan modification companies charge the homeowner substantial up-front fees for their services. If they collect most or all of their money up front, it stands to reason that they will not have as much of an interest in following up with the lender/servicer on your behalf. Why should they--they already have your money! Even if they state a refund policy if unsuccessful or even only pay upon success, the employee at such a company clearly does not have the same vested interest in your loan modification request going through successfully. You simply want it more than they do, and you will therefore do a much better job of following up yourself.

3. You Know How To Apply: Companies advertising loan modification services frequently assert that they know each lender's process, what is needed, and where to submit it. However, borrowers can easily obtain information on loan mods on their lender's website, or beginning with the Making Home Affordable website, which is an industrywide resource where borrowers can determine their own preliminary eligibility requirements. Another resource here has specifics information by lender (it is unknown how often information at this website is updated, so you're still better off checking directly at your lender's website.)

2. You Have Free Help Resources: Even if you find things tricky or complicated, there's no need to pay someone when there are free resources available to help. Two of these are